In a note on its corporate blog, Yahoo said it had signed “a global, non-exclusive agreement with Google to display ads on various Yahoo! properties and certain co-branded sites using Google’s AdSense for Content and Google’s AdMob services.”

The news was surprising for a couple reasons.

When Mayer quit Google in July for the job at Yahoo, she didn’t do it in the friendliest way.

The move essentially turns the web and mobile ad markets into the same, massive market. It adds 350 million mobile devices and 300,000 mobile apps to the AdWords universe, on all types of devices. Previously, AdWords reached 2 million web sites accessible by computers.

The move comes hours after Facebook did something similar—providing turnkey access to mobile and desktop, display and news feeds ads through its ads API. Taken together, it appears that Google and Facebook envision the web and mobile ad marketplaces eventually fusing into a relatively seamless whole.

On mobile, available inventory has thus far outmatched the demand for ads against it, depressing prices dramatically (especially at Google). A new influx of mobile advertisers from AdMob might raise mobile prices, but by directly pitting web ad inventory against mobile inventory it could also lead to lower average prices across the board.

The Business

You’ll almost certainly see plenty of headlines about Millennial “never turning in a profit” throughout its road show. That’s correct. It’s also irrelevant.

Millennial is growing fast and into an enormous market opportunity–mobile advertising. It should not be profitable. Gartner thinks mobile advertising will be a $20.6 billion market by 2015, which may be conservative. That’s the opportunity Millennial is going after.

What’s more, Millennial Media seems to be gaining both market and operating leverage.

Millennial Media’s gross margin, which is roughly the amount it keeps after payments to publishers, improved from 34% to 39% in the first nine months of 2011 compared to the same period in 2010. This is happening as Millennial is growing both advertisers and spending per advertisers, as you can see in the chart at right.

What’s more, Millennial’s losses are narrowing, as you can see in the chart above.

All of this suggests that Millennial is gaining both market leverage–as it gets more established it can keep more of the revenue it generates for publishers–and operating leverage–gaining operational efficiencies as it scales up.

The Market

One thing people might be worried about is competition from Apple and Google. We’re not. Here’s why:

Even though Google is much bigger than Millennial (see chart at right, using data aggregated and estimated by Business Insider Intelligence), most of that is on owned-and-operated properties. Google’s AdMob network is bigger than Millennial’s but it is not dominant.

Apple’s online advertising format/network, iAds, has struggled in the marketplace.

Ad networks are not a winner take all market. On the web, there are a few giants, and many profitable smaller players. There’s no reason why it couldn’t be the same on mobile, and Millennial, as the biggest independent player, is well positioned.

THE BOTTOM LINE: Millennial Media looks like a strong business scaling up nicely in an exciting, fast-growing market. It’s kind of a boring business–an ad network, but it seems to be executing well. More importantly, don’t trust the media reports that will inevitably bang on about how Millennial has never been profitable. Yes, that’s true, but it doesn’t matter.

AdMob doesn’t provide any explanation for this phenomenon, so here are our guesses:

iTunes has a smooth purchasing/payment process. Google’s marketplace might not be as good.

iTunes does a good job of highlighting popular paid apps. Android isn’t as good at that.

There are probably more paid apps on a relative basis for iPhone than Android.

The iPhone is positioned as a premium phone. Verizon offers some Android phones for free, same with T-Mobile. If you get your phone for free, you might be less willing to spend for applications. (Or be the type of users who buys paid apps.)

According to data collected by mobile advertising network AdMob, Android phones have surpassed the iPhone in mobile traffic—at least in terms of ads served to the devices, which is a pretty good measure for overall traffic. As mobile browsers account for more and more of our online time, it’ll be interesting to see how the OS distribution works out. [TechCrunch]

We’d previously heard rumors that Quattro Wireless was Apple’s consolation prize after a deal with bigger mobile advertising rival AdMob fell through, and Steve Jobs confirmed it on no uncertain terms at the Q&A session following today’s iPhone OS 4.0 event: “we tried to buy a company called AdMob… but Google snatched it away.” Indeed they did, though that deal hasn’t yet been approved by the Federal Trade Commission while Apple’s already up, up and away with its iAd solution, so it seems like everything shook out for the best — if you’re an iPhone developer, anyway.

Here are the US mobile web traffic figures for iPhone OS and Android, getting ready to collide: Android, on its way up; iPhone, on its way down. So when will Android overtake the iPhone? Try next month.

AdMob’s Mobile Metrics Report sees a predictable continuation of what we’d seen before from the ad tracking firm—specifically, that Android is on a serious tear, thanks in no small part to the massive success of the Droid. But before, the iPhone seemed unassailable. Now, it’s about to get trumped by Google’s OS, on terms it defined. In the US, that is. The rest of the world’s still warming to Android.
Modern smartphones are as much browsing devices as they are phones, so while mobile traffic isn’t the best way to measure total sales for a device, it’s a solid way to measure a device’s success, both in terms of how many people are using it, and how it’s getting used. The iPhone is a browsing device. So is the Pre. So are all the Android phones. But Windows Phones? BlackBerrys? Symbian devices? As popular as some of these are, they’re obviously not being used as smartphones.

The other key piece here, and one that’s not obvious from looking at the chart, is total browsing: It’s up. Way up. 193% up, in just one year. So when I talk about the iPhone falling to second place, I’m not declaring a loser—just a platform that’s winning more slowly. (Note: AdMob was recently, and generously, acquired by Google, though their advertising solutions are still cross-platform.) [Ars Technica]

AdMob serves north of 10 billion ads per month to more than 15,000 mobile websites and applications. Thus, although its data is about ad rather than page impressions, it can be taken as a pretty robust indicator of how web usage habits are developing and changing over time. Android is the big standout of its most recent figures, with Google loyalists now constituting a cool 42 percent of AdMob’s smartphone audience in the US. With the EVO 4G and Galaxy S rapidly approaching, we wouldn’t be surprised by the little green droid stealing away the US share crown, at least until Apple counters with its next slice of magical machinery. Looking at the global stage, Android has also recently skipped ahead of Symbian, with a 24 percent share versus 18 percent for the smartphone leader. Together with BlackBerry OS, Symbian is still the predominant operating system in terms of smartphone sales, but it’s interesting to see both falling behind in the field of web or application usage, which is what this metric seeks to measure. Figures from Net Applications (to be found at the TheAppleBlog link) and ArsTechnica‘s own mobile user numbers corroborate these findings.

The age distribution makes a lot of sense, especially with the direct available comparison of the iPhone: the iPod Touch is a good gift, a plausible purchase, and a good investment for a young person right now. An iPhone with a $70-a-month minimum contract is a tougher sell, either to parents, or to kids mostly supported by their parents.

And these kids don’t just buy different gadgets than adults—they use them differently, too. For example, they looooove apps:
But they’re stingy little bastards, these kids:
Buying an app can be tough without a credit card, so again, this isn’t shocking. But it does poke a little hole in the idea of the iPod Touch as a massive moneymaker for Apple. Hardware sales are tremendous and highly profitable, sure, but once the devices are in users’ soft little baby hands, they don’t keep raking it in like the iPhone does. [AdMob]

Digital Consigliere

Dr. Augustine Fou is Digital Consigliere to marketing executives, advising them on digital strategy and Unified Marketing(tm). Dr Fou has over 17 years of in-the-trenches, hands-on experience, which enables him to provide objective, in-depth assessments of their current marketing programs and recommendations for improving business impact and ROI using digital insights.